This week’s Outside the Box is an incendiary blog written by Steve Keen on debt deflation and GDP growth. I am not certain as to his math (is he double counting debt and consumer spending?) but he does illustrate very well the problem of a deleveraging recession, which I have been writing about for a long time. This is just a different type of recession we are in. So rather than fret over the absolute certainty of the math, read this for an understanding of the nature of the problems we face. He has the direction right, I think, which is the important part for us to grasp.

Then he just now posted a second blog on Quantitative Easing, which he ends with pointing out why it might “work” but also suggests that it would lead to yet another financial bubble. Again, very Outside the Box thinking. It has me going ‘hmmm.”

There is the strong possibility that policy makers in the US and UK will not time the transition from the current quantitative easing to a more tightened monetary policy. That is not because they are no competent. It is because the task is very tricky and there is no play book outlining the steps. This is not Tom Landry (former Dallas Cowboy coach) pacing the field with a play for every situation already planned and practiced well in advance.

The odds favor they will either be too late or too early. Getting it 'just right.' The Goldilocks play, would be more than fortunate. In fact, there may be no right play to call. They may be forced to choose between a slower economy and/or inflation/deflation. And as this week's Outside the Box authors note, there is also the possibility of yet another asset bubble, making the choices even more risky.